Michigan Auto Parts Essay

961 Words Oct 13th, 2010 4 Pages
1. Calculate the overhead allocation rate for each of the model years 2003 through 2005. Are the changes since 2002 overhead allocation rates significant? Why have these changes occurred?

Overhead Allocation refers to the process of identifying specific overheads of a particular cost centre and charging them. For example, in this case wages paid to truck drivers is an overhead cost which is directly identifiable with the Cost Centre i.e. ACF. In case of expenses which cannot be directly identified with that cost centre or which are used by many cost centres allocation will be made on a suitable basis. For example, rent on the basis of floor area.

The above mentioned methods are called as direct method (in case of direct
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|12000 |OT and other benefits to production |Class I and Class II |Same as 1500 above |
| |workers | | |
|14000 |OT and other benefits to skilled |Class I |Same as 5000 above |
| |non-production workers referred in 5000 | | |
| |above | | |

Allocation of Overheads to Each Class Products

(Amount in $000)

| | |2003 |2004 |2005 |
|Account Head |Basis of Allocation|Total OH |
|A) Revenue |226,542 |133,422 |
|(Same as 2005 as there is no change in selling price and Sales quantity) | | |
|B) Cost |